The impact of intensifying competition for residential mortgage loans on banking stability seems benign so far, but will be monitored closely, Monetary Authority Chief Executive Joseph Yam says.

In his Viewpoint column published today, Mr Yam reasserted the authority's resolution to take supervisory measures if necessary.

In view of the stress test on banks, the industry in general is resilient to risks like a sudden and significant narrowing of the prime-HIBOR (Hong Kong Interbank Offered Rate) spread, he said. However, the banks' ability to withstand interest-rate risk may be undermined if the flexibility to raise prime rates is limited by market competition, and if the compression of the prime-HIBOR spread is associated with an economic downturn or falling residential property prices.